Obesity is frequently associated with type 2 diabetes. We previously observed an association of a functional G/A polymorphism in the uncoupling protein 2 (UCP2) promoter with obesity. The wild-type G allele was associated with reduced adipose tissue mRNA expression in vivo, reduced transcriptional activity in vitro, and increased risk of obesity. On the other hand, studies in animal and cell culture models identified pancreatic β-cell UCP2 expression as a main determinant of the insulin secretory response to glucose. We therefore ascertained associations of the −866G/A polymorphism with β-cell function and diabetes risk in obesity. We show here that the pancreatic transcription factor PAX6 preferentially binds to and more effectively trans activates the variant than the wild-type UCP2 promoter allele in the β-cell line INS1-E. By studying 39 obese nondiabetic humans, we observed genotype differences in β-cell function; wild-type subjects displayed a greater disposition index (the product of insulin sensitivity and acute insulin response to glucose) than subjects with the variant allele (P < 0.03). By comparing obese subjects with and without type 2 diabetes, we observed genotype-associated differences in diabetes prevalence that translated into a twofold age-adjusted risk reduction in wild-type subjects. Thus, the more common UCP2 promoter G allele, while being conducive for obesity, affords relative protection against type 2 diabetes.